Investing in the stock markets is something that has become part of everyday life. Having been around for centuries, the volatility of stock markets is tracked daily, there are even dedicated TV channels providing minute by minute analysis. But did you know there is actually a financial market that trumps it all?
The Foreign Exchange Market (also known as Forex) is actually the world’s biggest financial market and in comparison to stock markets there are some major differences.
Whereas stock exchanges are bound by time restraints, Forex markets are open 24/5, spanning different time zones all over the globe, it’s estimated that $7.5 trillion dollars of trading volume takes place on a daily basis.
Now you might be reading this and may have dabbled in Forex markets in the past, or it could be something that you have very little experience of. Either way, whatever side of the fence you sit on, in this guide we will break down how you can better understand everything that Forex is about and how you can get involved in the world’s biggest trading arena.
Why is Forex important?
Before we break into how you can start to navigate Forex markets, let’s explain why Forex is important.
Forex involves the buying and selling pairs of international currencies. If exchanging currencies for another, everybody wants to benefit from the best rate. Whether that’s a family taking a holiday abroad or a huge global company conducting business abroad. The state of Forex markets will determine the rates that people and businesses will receive.
With Forex markets able to influence purchasing and investment decisions at almost every level, you can start to get a sense of why Forex is so vital to economies all over the globe.
So, how does Forex work?
Although the scale of trading 24 hours a day, five days a week can be ginormous, thankfully Forex is easy to understand.
It simply involves trading one currency for another, for example Dollars and Pounds, or Yen and Euros.
However, the art to the deal is trying to take advantage of the markets when the currency you want to trade for are in your favour. It’s important to stress that markets are always shifting and fluctuating and you want to try and time a trade for when the rates are in your favour.
What is the best way to navigate Forex global markets – the Pros
There are several reasons why trading and investing in Forex can be a great thing to do. Let’s explore some of these below.
The global nature of Forex markets means you can make them work around you
As we have already mentioned, the primary difference between stock and Forex markets is that Forex aren’t bound by time restrictions – therefore you can make it work around you and your commitments.
Although trading Forex 24 hours a day is a possibility, a typical day in Forex is split into four different sessions.
- Sydney is open from 9:00 pm to 6:00 am UTC
- Tokyo is open from 12:00 am to 9:00 am UTC
- London is open from 7:00 am to 4:00 pm UTC
- New York is open from 1:00 pm to 10:00 pm UTC
Whilst there is no barrier in terms of when you want to invest. It is worth paying attention to the timings of these sessions as when one session opens and another closes, often this is when trading can be at its busiest and potential profits can be made.
There are trading platforms that can help provide you with valuable insights and information
When it comes to trying to make the best Forex trades, thankfully there are many trading platforms that can provide you with plenty of help and insight. One of those platforms is ThinkMarkets.
Using sophisticated algorithms and insights, you can get a sense of how certain currencies are trading against one another which should help provide vital information as to what currencies you might want to trade and at what time of day you want to trade them.
If there are currencies you want to get involved with, you can create watchlists and monitor these at a glance. What’s more is that you can put important stop gaps in place to ensure that you keep any losses in control.
Designed to make your life easier, most platforms such as ThinkMarkets allow you to demo their products before you choose to purchase it so you can give it a try before you buy.
You can often make trades with fake funds before investing for real
Although completing Forex trades can be a fairly straightforward thing to do, the global nature of the markets can be a little overwhelming. If you are new to Forex and want to get a better understanding of how they work and how you can structure them around your daily life, you can often make trades using demo funds.
Using demo funds, allows you to make trades in a risk free environment. If you lose money through trades, you won’t lose any real money as the funds you will be using are fake.
Although some of you may see this as a pedantic step, it has proven to be a great way to learn and understand the various nuances that Forex trading can provide before you decide to invest for real.
What is the best way to navigate Forex global markets – the Cons
Just like trading in the stock markets there are some disadvantages that you need to be aware of.
Forex markets are very sensitive to global events and developments
One of the main drawbacks when investing in Forex markets is that they can be very sensitive to any significant global events. For example if wars are started, there are natural disasters or changes in government policy, all can have a negative impact on the strength of global currencies and means you have very little leverage over the rates that are determined.
Take the recent decision by Donald Trump to introduce trading tariffs. With businesses looking at additional fees to trade with the US, many global currencies took a nosedive which led to an exceptionally volatile Forex market. Rates can shift at an instant which is why you need to keep your finger on the pulse to maximise your potential margins.
As Forex never sleeps, you might miss out on great rates whilst you do!
Whereas you can set decisions on rates by using trading platforms, if you want to be more of a casual Forex trader, it can be hard to keep track of rates and exchanges at all hours of the day. Due to the global nature of Forex, there could be an optimum time to trade, but you may miss out on those rates due to the fact that they could be happening at a time when you may be asleep.
If you miss out on rates, it’s important to keep your emotions in check and that you stick to a plan, instead of pushing to make profits.
Forex – a fun and easy way to trade
If you are new to the world of Forex or this guide has provided you with a refresher, we hope that you have a better understanding of how Forex works and how you can get involved.
At its heart, it is a simple and fun trading market to get involved in and if you are taking your first steps into the world of trading and investing, it can be a great area to get started in.
The global nature of Forex should mean that there should be time that you can work your trades around that suits you – you can set the agenda. Just be mindful of what is happening in the world, so those carefully planned moves could need a rethink if the market shifts.
